Why do you want a car payment?

I’ve never had a car payment. My mom bought me a car when I went to college. That was in 2003. I’m still driving that honda accord with nearly 260k miles on it. Is it busted? Oh yeah. I don’t give a shit. I care about not having a $500 a month car payment, which is now the average in this country.

Vehicles are what’s called a depreciating asset. Meaning that it’s constantly losing value. The majority of this loss happens in the first year of ownership. After that the depreciation is around 15% a year for the next few years. So after five years you have an asset that’s worth roughly half of what you paid for it. More like 45%, but at that point, does it even matter? What’s really funny/sad is that you’re (usually, depending on things like your credit score, etc…) paying interest on this asset the entire time that it’s losing value.

That’s right. Now it’s time to trade your old beat up, five year old car in for something newer and shinier. Sign on the dotted line and get yourself a fresh set of car payments.

Feeling like a mouse on a wheel? You probably should.

“Well dude, I like keeping new vehicles. I make plenty of money. It’s not that big of a deal.”

I suppose you’re right. But humor me. For just one second.

Let’s say that instead of that car payment, you take that $3,000 down payment and stick it in a Roth IRA.

Then let’s say you take that $500 a month payment and add that to your account until you max it out at $5500 a year.

You’ll have over half a million dollars in 30 years. About 850k after 35 years. Not exactly chump change, is it?

So what’s the solution?

I’m gonna get all Dave Ramsey here for a minute. Mostly because he’s right. Pay the car off. Drive that car until the wheels fall off. Then when it comes time to buy another car, buy a used, reliable vehicle. Pay for it outright. Then drive it until the wheels fall off. Or give it to your kids when they are able to drive. Or give it to me. I’ll take it. And I’ll drive it until the wheels fall off.

61% of people who earn $250,000 or more drive Hondas, Toyotas, and Fords. If I had to guess, I would say they’re buying these vehicles outright and not dealing with any kind of car payment. Why do I make that assumption? I dunno…maybe it’s because they make over a quarter million dollars every year?

So every time you see 4 luxury vehicles drive by, remember that six people who are likely millionaires have already driven by in a civic and you didn’t even notice.

So how did we get into this vicious cycle in the first place?

We live in a consumerist society. There’s people who go to work every day and they have one job. That job is to convince you to buy something. Now don’t get my wrong. Advertising is a good thing. People should buy stuff. People should know what’s new and what’s hot, what’s going to make their lives easier/better, etc… So do not blame the advertising and marketing people. They’re brilliant and hard working Americans.

I’m just saying that’s where this starts. YOU want the shiny new toy because a very smart person or team of people is convincing you that you want it. You think it’s going to make you happy or you want to show off status (or half a dozen other reasons) and advertisers have convinced you that it’s a possibility. All you need to do is buy what they’re selling and all of your dreams will come true. It’s YOUR job, as a consumer, to not fall for every shiny object you see on TV.

Here’s what I do:

Remember when you were a little kid and you would see a toy and you would grab it and try to sneak it into the cart? I know I do. And the conversation would usually go like this.

Mom: “Put it back.”
Me: “But why?”
Mom: “Because I said so.”
Me: “But why?”
Mom: “You wanna get beat in front of all these people?”

I didn’t care who watched. The fact is that I did not want an ass-whippin’. I did and still do think my ass is just fine the way it is…

Have this conversation in your mind. Don’t do it out loud. That would be weird. You know you don’t need to buy that car. You want it. It’s pretty. It has whatever new cars have that convinces people to buy them. I don’t even know what those things are these days. Cassette players, maybe?

Justify buying a new vehicle in your mind. Then think about everything else you could be spending that money on. Think about what you could be investing in. Your future. Your child’s future.

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Comments

Yes! Huzzah for no car payments! There are a few car models that hold onto their value fairly well over time (given the following assumptions: 1) you discount the initial drop in value when the car goes from new to used 2) it’s well-maintained 3) the wheels haven’t fallen off… lol). I completely gave up on having a car when I moved from DC to NYC, and I haven’t looked back. Thankfully, I can rely on public transportation so that’s a viable option for me, but not having to pay for gas, maintenance, or insurance saves me a TON of money.

On the flip side, my boyfriend constantly drools over nice cars, and has said to me before that his goal in life is to have three specific car models (pricey, expensive, and probably pricier than a college education). One day I may be able to convert him from that mindset, but for now, thankfully it’s not a problem because he wouldn’t even be able to afford payments on those cars.

Over the course of a year… a few hundred. I pay in transportation what I used to pay in gas, so there’s not a huge difference there. I also used to drive a car that was only a few years old so maintenance was pretty low. Between oil changes and insurance, though, I don’t miss the extra costs.
NYC does have a bad rep for being super expensive, but it can be done affordable. I don’t live in Manhattan which makes a big difference, and I keep my other costs as low as possible. I’m saving as much money as I was when I was living in Northern VA – actually more, since I’m now further immersed in the personal finance community 🙂

I’ve got this down to a science. I live five minutes from work and shop at the grocery store across the street from my job. On average, I go about 100 miles a month. $25-30 in the gas tank and I’m good for 30ish days.

Wow, I’ve put 46,000 miles on my car in 2 years, 5 months. My commute just dropped from 40 miles down to 8, but I’m making the 700 mile round trip to NY about once a month until September, then I won’t have a commute because I’ll be working from home.

Most of my miles came from driving back and forth to college in Charlotte. I’m from and still live in my hometown in VA.

So starting in just a few months you’ll be living the dream, eh? Better see some posts about how awesome it is. I gotta live vicariously through someone and I’m tired of pricing RVs I will never afford.

Hah! I’m sure you’ll find way more than just the mileage on your vehicle. Think about it. You’ll save thousands by eating in at home and probably save quite a bit on your wardrobe as well. Taking a break every so often to do something blog related is side hustling while technically on the clock. Possibilities are nearly endless.

I own a 94 NA Miata that has enough miles to have driven to the moon (around 244k currently). While a vehicle isn’t necessary for me as a college student, I have learned car maintenance skills that I value way more than the extra cost of having a car. As an added bonus, the work and money I’ve put into the car has raised the value enough to make it worthwhile.
I definitely agree with your point in the article though. I will never buy a new car. I enjoy surfing craigslist for hidden gems too much.

Man, if every college person had that kind of mindset, they probably wouldn’t have so much trouble after graduation. At least with their finances. I wish I was like that in college. Unfortunately, I was the typical kid who spend every dime he earned as soon as he got it. Buy beer first, hopefully have enough for rent after.

A great post with so many great points. I once fell victim to the shiny new car dream when we had our daughter. I thought a brand new car was the safest…or that was the excuse I used to convince myself to sign on the dotted line. At one point, I got tired of making payments and looked to see what I could sell my car for vs. what was owed…there was a $6000 difference! And not in my favor. Never ever ever again will I buy a new vehicle and I’m going to drive this Kia until it falls apart (or until my mechanic husband tells me it’s not worth putting parts into anymore).

Great post! I fell victim to the new car purchase a few years after college. I financed a new $25k car on a $39k salary. Probably one of the biggest financial missteps I made. But I didn’t know better at the time. Paid it off in four years and haven’t had a car payment since. I still drive that car (2002 Subaru WRX), so at least I’ve gotten a lot of value out of it. But I could have put those payments to much better use.

I’m also in the no car payment club. My ride has nearly 250,000 miles on it. While it rides good, I know that I’m about to purchase something soon. My plan is to get a vehicle for under $6000 and pay for it in cash.